September 27, 2021

Latam

LATAM PULSE

BY Mario Marconini, Nicholas Watson

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( 5 mins)

This week, Peru‘s government is in another muddle of its own making – this time over a threat to nationalize natural gas resources – while Congress will keep the Pedro Castillo administration on the backfoot. In Mexico, energy policy in the downstream sector returns to the political spotlight, while monetary policy will be under renewed focus. Brazil is gearing up for more protests against President Jair Bolsonaro. In Argentina, the need to rein in the fiscal deficit is at odds with plans for a pre-electoral spending splurge. Finally, in Ecuador, a series of labor, tax, and other reforms submitted by President Guillermo Lasso are in the hands of a largely hostile legislature.

Peru

The government is entangled in another controversy after Prime Minister Guido Bellido threatened to nationalize the consortium that operates the Camisea natural gas field. The threat risks undoing Finance Minister Pedro Francke’s recent efforts to reassure investors that an anti-market shift is not on the cards. Francke last week ruled out expropriations. He also revealed that the respected Central Bank (BCR) governor Julio Velarde has been formally invited to stay on in his role and that proposed tax measures for the mining sector will be designed with help from the IMF. Francke’s plan is to obtain special decree powers from Congress this week in order to pass the new tax measures. That will require dialogue and compromise in Congress – something that this administration has struggled to achieve, and that Bellido’s declarations could torpedo.

Separately, Foreign Minister Oscar Maurtua will go before a congressional commission for questioning on 28 September following a recent unscheduled meeting between President Pedro Castillo and his Venezuelan counterpart Nicolas Maduro. The meeting took place on the sidelines of a regional summit in Mexico City last weekend. Opposition parties criticized the meeting, which also set off clashes within the government after the deputy foreign minister Luis Enrique Chavez declared that Peru does not recognize Maduro as legitimate, which prompted an angry denial from Bellido.

Mexico

President Andres Manuel Lopez Obrador (AMLO) has been acclaiming his own downstream energy plans over the weekend in visits to his flagship Dos Bocas oil refinery and to another refining facility in Veracruz. AMLO pledged that Dos Bocas would be finished in nine months and that Mexico will be self- sufficient in finished fuel products by the end of his presidency in 2024. The visits follow a series of actions in recent days and weeks against private downstream operators; these include the suspension of several import permits for refined products and the shutdown of three privately-owned fuel storage terminals, which are likely designed to benefit state oil company Pemex. The CCE business lobby has warned the actions could create fuel shortages.

Separately, the Central Bank (Banxico) holds a monetary policy meeting on 30 September amid rising inflation. Inflation in the 12 months to the middle of September reached 5.87%, well above the bank’s 3% +/-1% target range; Banxico says the 3% target is only likely to be reached in mid-2023. The most recent Citibanamex survey of local economists points to inflation reaching 6.1% over 2021. Two further monetary policy decisions are scheduled between now and the end of the year. Inflation and monetary policy aside, the looming change in Banxico governor from Alejandro Diaz de Leon to former finance minister Arturo Herrera, who is seen as having less independence from AMLO, will be the other issue to watch ahead.

Brazil

President Jair Bolsonaro tested negative for Covid-19 this weekend, following positive tests by several members of his delegation to the UN general assembly, including Health Minister Marcelo Queiroga. Bolsonaro will spend the week of his 1,000th day in government traveling the country to inaugurate federal public works in pro-government constituencies. The week starts with a full-day session in Congress today, 27 September, to analyze 39 presidential vetoes, including an increase in Covid-19-related expenditures. The House plenary may vote on the administrative reform this week if prospects of approval improve significantly. The week will also see the mobilization of leftwing movements for the anti-Bolsonaro protests scheduled for 2 October.

Argentina

Finance Minister Martin Guzman will have to defend his 2022 budget proposal this week in the face of pressure from his own Front for All (FdT) coalition partners. The most sensitive issue is utility subsidies, which Guzman wants to reduce in a bid to lower the fiscal deficit and therefore reach a new agreement with the IMF. The FdT wants to generate as much of a feelgood sensation as possible before the November mid-terms. Expect more announcements this week with that goal in mind. At the same time, the government is putting pressure on supermarkets to keep prices stable for the next seven weeks until the vote. Poverty data for H1/2021 due out on 30 September could show a small improvement from 2020 and will no doubt also be spun as proof that the worst of the economic crisis is over.

Ecuador

Interior Minister Alexandra Vela has said that the National Assembly (AN) could begin discussions over the government’s Creation of Opportunities bill, which was unveiled on 24 September, as soon as today, 27 September. The bill, which includes a series of proposals covering tax changes, the labor code, and capital market rules needs to clear its first hurdle in the AN: win a majority on the Council for Legislative Administration (CAL), where the government does not have a majority. If it passes this test, any formal discussions will have to wait for the government and the indigenous Pachakutik (PK) party to engage in talks. These are scheduled for 4 October. President Guillermo Lasso has already said that if the reforms are blocked in the AN, his “plan B” involves putting his proposals to a public referendum before the end of this year.

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